-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H6iG5GoXe7PjH4sv3zazQDdFvvnbk/271QcgqKskI7jQymlesSXuehDDzBLzvIAQ rpDDeKk7wjMIhhSO5tzH/Q== 0000910680-03-000742.txt : 20030814 0000910680-03-000742.hdr.sgml : 20030814 20030814114348 ACCESSION NUMBER: 0000910680-03-000742 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OPHTHALMIC IMAGING SYSTEMS INC CENTRAL INDEX KEY: 0000885317 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 943035367 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-11140 FILM NUMBER: 03844533 BUSINESS ADDRESS: STREET 1: 221 LATHROP WAY STE 1 CITY: SACRAMENTO STATE: CA ZIP: 95815 BUSINESS PHONE: 9166462020 MAIL ADDRESS: STREET 1: 221 LATHROP WAY STREET 2: SUITE 1 CITY: SACRAMENTO STATE: CA ZIP: 95815 10QSB 1 f10qsb081203.txt QUARTERLY REPORT U.S. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-QSB QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2003 Commission File Number: 1-11140 OPTHALMIC IMAGING SYSTEMS (Exact name of registrant as specified in its charter) California 94-3035367 (State of Incorporation) (IRS Employer Identification No.) 221 Lathrop Way, Suite I, Sacramento, CA 95815 (Address of principal executive offices) (916) 646-2020 (Issuer's telephone number, including area code) Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes XX No ------------- ------------- As of August 14, 2003, 14,354,521 shares of common stock, no par value, were outstanding. Transitional Small Business Disclosure Format: Yes No XX ------------- ------------- OPTHALMIC IMAGING SYSTEMS FORM 10-QSB FOR THE QUARTER ENDED June 30, 2003 PART I. FINANCIAL INFORMATION Page ---- Item 1. Financial Statements Condensed Balance Sheet as of June 30, 2003 2 Condensed Statements of Operations for the Three Months and Six Months ended June 30, 2003 and June 30, 2002 3 Condensed Statements of Cash Flows for the Six Months ended June 30, 2003 and June 30, 2002 4 Notes to Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Controls and Procedures 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings 16 Item 2. Changes in Securities and Use of Proceeds 16 Item 3. Defaults upon Senior Securities 16 Item 4. Submission of Matters to a Vote of Security Holders 16 Item 5. Other Information 16 Item 6. Exhibits and Reports on Form 8-K 16 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS 1 OPTHALMIC Imaging Systems Condensed Balance Sheet June 30, 2003 (Unaudited)
Assets Current assets: Cash and equivalents $ 346,468 Accounts receivable, net 1,203,036 Inventories, net 366,371 Prepaid expenses and other current assets 198,986 Deferred tax asset 51,000 ------------ Total current assets 2,165,861 Furniture and equipment, net of accumulated depreciation and amortization of $1,355,459 170,540 Restricted cash for line of credit 150,000 Other assets 12,890 ------------ $ 2,499,291 ============ Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 539,029 Accrued liabilities 1,550,607 Deferred extended warranty revenue 381,254 Customer deposits 261,417 Income taxes payable 28,000 Capitalized lease obligation and other notes payable 2,758 ------------ Total current liabilities 2,763,065 ------------ Noncurrent Liabilities: Line of credit 150,000 Notes payable to related party 458,704 ------------ Total noncurrent liabilities 608,704 ------------ Stockholders' deficit: Preferred stock, no par value, 20,000,000 shares authorized; none issued or outstanding -- Common stock, no par value, 20,000,000 shares authorized; 14,354,521 issued and outstanding 13,780,604 Accumulated deficit (14,653,082) ------------ Total stockholders' deficit (872,478) ------------ $ 2,499,291 ============
The accompanying notes are an integral part of these condensed financial statements. 2 OPTHALMIC Imaging Systems Condensed Statements of Operations (Unaudited)
Three months ended June 30, Six months ended June 30, 2003 2002 2003 2002 ----------- ----------- ----------- ----------- Net revenues $ 2,400,724 $ 1,947,609 $ 4,786,437 $ 3,835,701 Cost of sales 977,424 866,547 1,937,083 1,700,110 ----------- ----------- ----------- ----------- Gross profit 1,423,300 1,081,062 2,849,354 2,135,591 Operating expenses: Sales and marketing 697,699 569,882 1,330,555 1,084,970 General and administrative 164,757 168,502 541,331 532,656 Research and development 180,322 171,893 261,230 269,163 ----------- ----------- ----------- ----------- Total operating expenses 1,042,778 910,277 2,133,116 1,886,789 ----------- ----------- ----------- ----------- Income from operations 380,522 170,785 716,238 248,802 Interest and other expense, net (75,424) (104,951) (118,470) (179,411) ----------- ----------- ----------- ----------- Net income before income taxes 305,098 65,834 597,768 69,391 Income taxes (3,000) -- (3,000) -- ----------- ----------- ----------- ----------- Net income $ 302,098 $ 65,834 $ 594,768 $ 69,391 =========== =========== =========== =========== Shares used in the calculation of basic net income per share 8,206,615 8,138,305 8,172,460 8,138,305 Basic net income per share $ 0.04 $ 0.01 $ 0.07 $ 0.01 =========== =========== =========== =========== Shares used in the calculation of diluted net income per share 8,651,215 8,138,305 8,400,620 8,138,305 Diluted net income per share $ 0.03 $ 0.01 $ 0.07 $ 0.01 =========== =========== =========== ===========
The accompanying notes are an integral part of these condensed financial statements. 3 OPTHALMIC Imaging Systems Condensed Statements of Cash Flows (Unaudited)
Six months ended June 30, 2003 2002 ------------- -------------- Operating activities: Net income $ 594,768 $ 69,391 Adjustments to reconcile net income to net cash provided by(used in) operating activities Depreciation and amortization 24,914 37,765 Net increase in current assets other than cash and equivalents (350,270) (117,996) Net increase(decrease) in current liabilities other than short-term borrowings 16,720 (45,553) ----------- ----------- Net cash provided by(used in) operating activities 286,132 (56,393) Investing activities: Purchases of furniture and equipment (16,903) (14,719) Increase in restricted cash (150,000) Net increase in other assets -- (9,357) ----------- ----------- Net cash used in investing activities (166,903) (24,076) Financing activities: Principal payments on notes payable (1,409) (3,169) Proceeds from borrowings under line of credit, net 150,000 -- Proceeds from (repayments of) borrowings under notes payable to related party, net (304,586) 97,800 ----------- ----------- Net cash (used in) provided by financing activities (155,995) 94,631 ----------- ----------- Net (decrease) increase in cash and equivalents (36,766) 14,162 Cash and equivalents at beginning of period 383,234 71,926 ----------- ----------- Cash and equivalents at end of period $ 346,468 $ 86,088 =========== =========== Supplemental schedule of noncash financing activities: Addition to (reduction in) aggregate debt payable to significant shareholders in exchange for inventory and other noncash transactions, net $ (104,586) $ (145,497) =========== =========== Supplemental schedule of cash flow information: Conversion of related party notes payable to common stock $ 1,150,000 -- Cash paid for taxes $ 3,000 --
The accompanying notes are an integral part of these condensed financial statements. 4 OPTHALMIC Imaging Systems Notes to Condensed Financial Statements Three and Six Month Periods ended June 30, 2003 and 2002 (Unaudited) Note 1. Basis of Presentation The accompanying unaudited condensed balance sheet as of June 30, 2003, condensed statements of operations for the three and six month periods ended June 30, 2003 and 2002 and the condensed statements of cash flows for the six month periods ended June 30, 2003 and 2002 have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnote disclosures required by generally accepted accounting principles for complete financial statements. It is suggested that these condensed financial statements be read in conjunction with the audited financial statements and notes thereto included in OPTHALMIC Imaging Systems' (the "Company's") Annual Report for the year Ended December 31, 2002 on Form 10-KSB. In the opinion of management, the accompanying condensed financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company's financial position and results of operations for the periods presented. The results of operations for the period ended June 30, 2003 are not necessarily indicative of the operating results for the full year. Certain amounts in the fiscal 2002 financial statements have been reclassified to conform to the presentation in the fiscal 2003 financial statements. Note 2. Net Income Per Share Basic earnings per share ("EPS"), which excludes dilution, is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as stock options, result in the issuance of common stock which shares in the earnings of the Company. The treasury stock method is applied to determine the dilutive effect of stock options in computing diluted EPS. 5
Unaudited Unaudited Three Months Ended Six Months Ended June 30, June 30, 2003 2002 2003 2002 ---------- --------- ----------- ---------- Numerator for basic and diluted net income per share $ 302,098 $ 65,834 $ 594,768 $ 69,391 ========== ========= =========== ========== Denominator for basic net income per share: Weighted average shares 8,206,615 8,138,305 8,172,460 8,138,305 Effect of dilutive securities: Employee/director stock 444,600 -- 228,160 -- options Warrants and other -- -- -- -- ---------- --------- ----------- ---------- Dilutive potential common shares -- -- -- -- ---------- --------- ----------- ---------- Denominator for diluted net income per share 8,651,215 8,138,305 8, 400,620 8,138,305 ========== ========= =========== ========== Basic net income per share $ 0.04 $ 0.01 $ 0.07 $ 0.01 ========== ========= =========== ========== Diluted net income per share $ 0.03 $ 0.01 $ 0.07 $ 0.01 ========== ========= =========== ==========
Options and warrants whose exercise price exceeds the average market price of the stock have been excluded from this computation. Note 3. Notes Payable to Related Parties During the period of August 2000 through July 1, 2001, the Company executed several promissory notes in favor of MediVision Medical Imaging LTD. ("MediVision"), an Israeli corporation and majority shareholder in the Company. The "Short-Term Note" had a maximum principal balance of $260,000 available, while the "Working Capital Funding Agreement and Amendment No.1" to this agreement provided an additional funding of $2.5 million. Both Notes and the Amendment bear interest at the rate of 9.3% per annum and are secured by all of the Company's assets. The principal amount outstanding, together with any and all accrued interest on the Working Capital Note and Amendment, is payable by August 31, 2003, except that MediVision may, at its option, at any time convert any amount of principal and interest then outstanding into shares of the Company's common stock at a conversion price of $.80 per share on the Working Capital Note and $0.185 per share on the Amendment No.1 to the Working Capital Note. In May 2003, the Company and MediVision entered in Amendment No. 2 to the Working Capital Funding Agreement and the Short Term Note whereby the repayment terms on the debt were extended on all principal and interest due until January 1, 2005. In June 2003, MediVision exercised its option, as stipulated in the Working Capital Funding Agreement, Amendment No. 1, to convert $1,150,000 of 6 principal and interest at a conversion price of $0.185 per share into 6,216,216 common shares of stock. As a result of the foregoing transactions, MediVision currently owns approximately 85% of the Company's outstanding common stock. At June 30, 2003, after the conversion, the Company had recorded approximately $459,000 in aggregate debt owed to MediVision, which amount is net of approximately $1,263,000 in accounts receivable recorded in connection with sales of the Company's products to MediVision. In August 2002, the Company's Board of Directors, at MediVision's request, authorized the Company to guarantee and/or provide security interests in its assets for certain of MediVision's loans with financial institutions, in the maximum aggregate amount of approximately $1.9 million. In August 2002, MediVision subordinated to the financial institutions its security position in the Company's assets, which had been granted in consideration of loans to the Company from MediVision. In December 2002, the Company's Board of Directors approved that the Company enter into and issue a debenture in favor of the bank to act as security for the debt of MediVision, such debenture shall be secured by a second lien on all of the Company's assets. Such debenture and lien were signed in December 2002. Note 4. Working Capital Line of Credit In May 2003, the Company entered into a $150,000 Line of Credit agreement with its bank. The line is secured by a pledged investment with the bank equal to the amount of the line of credit. The interest charged on the line of credit is at prime rate and is due monthly. Advances on the line mature on June 10, 2008. Note 5. Stock Based Compensation At June 30, 2003, the Company had five stock-based compensation plans. The Company accounts for the Plans under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. No stock-based compensation cost is reflected in net income, as all options granted under the Plans had an exercise price equal to the market value of the underlying common stock on the date of grant. For purposes of pro forma disclosures, the estimated fair value of stock-based compensation plans and other options are amortized to expense primarily over the vesting period. The following tables illustrate the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation," to stock-based compensation. 7
Three Months Ended Six Months Ended June 30, June 30, 2003 2002 2003 2002 ----------- ---------- ----------- ---------- Net Income, As Reported $ 302,098 $ 65,834 $ 594,768 $ 69,391 Deduct Total Stock-Based Employee Compensation Expenses Determined Under the Fair Value Based Method For all Awards, Net of Related Tax Effects (15,234) (13,428) (28,662) (26,855) ----------- ---------- ----------- ---------- Pro Forma Net Income $ 286,864 $ 52,406 $ 566,106 $ 42,536 =========== ========== =========== ========== Basic Earnings Per Share As Reported $ 0.04 $ 0.01 $ 0.07 $ 0.01 Pro Forma $ 0.04 $ 0.01 $ 0.07 $ 0.01 Diluted Earnings Per Share: As Reported $ 0.03 $ 0.01 $ 0.07 $ 0.01 Pro Forma $ 0.03 $ 0.01 $ 0.07 $ 0.01
As required, the pro forma disclosures above include options granted since January 1, 1995. Consequently, the effects of applying FASB Statement No. 123 for providing pro forma disclosures may not be representative of the effects on reported net income for future years until all options outstanding are included in the pro forma disclosures. The fair value of each option granted during the periods indicated was estimated on the date of grant using an option-pricing model. Options were granted for the three-month period ended June 30, 2003, to purchase 650,000 shares of common stock, of which 400,000 shares were cancelled and reissued with substantially similar terms. In addition, options to purchase 100,000 shares prior to this reporting period were cancelled resulting in a net grant for the three-month period ending June 30, 2003 of 150,000 shares. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This report contains forward-looking statements within the meaning of the federal securities laws. The Company intends such forward-looking statements to be covered by the safe harbor provisions contained in Section 27A of the Securities Act of 1933, as amended, and in Section 21E of the Exchange Act of 1934, as amended. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on its operations and future prospects include, but are not limited to, changes in: economic conditions generally and the medical instruments market specifically, legislative or regulatory changes affecting the Company, including changes in healthcare regulation, the availability of working capital, the introduction of competing products, and other risk factors described herein. These risks and uncertainties, together with the other risks described from time to time in reports and documents filed by the Company with the Securities and Exchange Commission should be considered in evaluating forward-looking statements, and undue reliance should not be placed on such statements. Indeed, it is likely that some of the Company's assumptions will prove to be incorrect. The Company's actual results and financial position will vary from those projected or implied in the forward-looking statements, and the variances may be material. Overview - -------- To date, the Company has designed, developed, manufactured and marketed OPTHALMIC digital imaging systems and has derived substantially all of its revenues from the sale of such products. The primary target market for the Company's digital angiography systems and related products has traditionally been retinal specialists. In October 2001, MediVision, the Company's parent, signed an agreement for the acquisition of a minority interest by Agfa Gevaert N.V. creating an alliance for joint development and marketing of an integrated, digital Ophthalmology PACS solution. The marketing efforts under this agreement are anticipated to be implemented beginning in the US market, and are to include efforts by the Company. The extent and focus of future research and development efforts will depend, in large measure, on direction from MediVision, including potential collaborative projects between MediVision and the Company. In June 2003, the Company signed a licensing agreement with NextGen Healthcare Information Systems, Inc., a subsidiary of Quality Systems, Inc. Under the terms of the agreement, OIS will become a value added reseller of two computer-based practice management and medical records products: NextGen(R) Electronic Medical Records (EMR) and NextGen(R) Enterprise Practice Management (EPM). This strategic business alliance diversifies the product portfolio of OIS, enabling the Company to offer a wider variety of products and comprehensive solutions to its customer base of ophthalmology departments and practices. The NextGen(R) EMR system creates and maintains complete medical records with minimal effort while it streamlines workflow, controls utilization, and manages critical data related to patient care outcomes. The NextGen(R) EPM 9 system is a complete physician management system that provides a common registration system, enterprise-wide appointment scheduling, referral tracking, clinical support, a custom report writer, and patient financial management based on a managed care model. At June 30, 2003, the Company had a stockholders' deficit of approximately $872,000 and its current liabilities exceeded its current assets by approximately $597,000. The Company continues to experience cash flow pressures and there can be no assurance that the Company will be able to achieve or sustain significant positive cash flows, revenues or profitability in the future. The following discussion should be read in conjunction with the unaudited interim financial statements and the notes thereto which are set forth elsewhere in this Report on Form 10-QSB. In the opinion of management, the unaudited interim period financial statements include all adjustments, all of which are of a normal recurring nature, that are necessary for a fair presentation of the results of the periods. Critical Accounting Policies - ---------------------------- The Company's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The financial information contained within its statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset or relieving a liability. The Company recognizes revenue when products are shipped. Estimates are used relative to the expected useful lives of depreciable assets. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of the Company's transactions would be the same, the timing of events that would impact transactions could change. Financial Accounting Pronouncement FAS 148 - ------------------------------------------ In December 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure-an amendment of FASB Statement No. 123" (SFAS" No. 148"). This Statement amends SFAS No. 123, ""Accounting for Stock-Based Compensation" (SFAS No. 123"), to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition guidance and annual disclosure provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reporting containing financial statements for interim periods beginning after December 15, 2002. Because the Company accounts for the compensation cost associated with its stock option plans under the intrinsic value method, the alternative methods of transition will not apply to the Company. The additional disclosure requirements of the statement are included in these financial statements. Management does not believe that the adoption of this Statement had a material impact on the Company's consolidated financial 10 position or results of operations. New Accounting Pronouncement FAS 149 - ------------------------------------ On April 30, 2003, the Financial Accounting Standards Board issued Statement No. 149, "Amendment of Statement on Derivative Instruments and Hedging Activities." This Statement amends and clarifies the accounting for derivative instruments by providing guidance related to circumstances under which a contract with a net investment meets the characteristics of a derivative as discussed in Statement 133. The Statement also clarifies when a derivative contains a financing component. The Statement is intended to result in more consistent reporting for derivative contracts and must be applied prospectively for contracts entered into or modified after June 30, 2003, except for hedging relationships designated after June 30, 2003. In management's opinion, adoption of this statement is not expected to have a material effect on the Company's financial position or results of operations. New Accounting Pronouncement FAS 150 - ------------------------------------ In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Some of the provisions of this Statement are consistent with the current definition of liabilities in FASB Concepts Statement No. 6, Elements of Financial Statements. The remaining provisions of this Statement incorporate the FASB's intention to revise the definition to encompass certain obligations that a reporting entity can or must settle by issuing its own equity shares, depending on the nature of the relationship established between the holder and the issuer. This Statement concludes the first phase of the FASB's redeliberations of the Exposure Draft, Accounting for Financial Instruments with Characteristics of Liabilities, Equity, or Both. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatorily redeemable financial instruments of nonpublic entities. In management's opinion, adoption of this statement did not have a material effect on the Company's consolidated financial position or results of operations Results of Operations Revenues The Company's revenues for the second quarter ended June 30, 2003 were $2,400,724, representing an increase of approximately 23% from revenues of $1,947,609 for the second quarter ended June 30, 2002. Revenues for the first six months of fiscal 2003 were $4,786,437 representing an increase of approximately 25% from revenues of $3,835,701 for the comparable period of fiscal 2002. Digital angiography systems and peripherals accounted for approximately 93% and 94% of the Company's revenue for the second quarter and six-month period of 2003, respectively. Sales of these products accounted for approximately 94% and 93% of the Company's total revenues for the second quarter and six-month period of 2002, respectively. Service revenues accounted for approximately 7% of the Company's revenue for the second 11 quarter and six-month period of 2003 and 2002. Revenues from sales of the Company's products to MediVision were approximately $237,000 and $290,000 during the 3-month and six-month periods ended June 30, 2003 and $99,000 and $229,000 for the comparable three-month and six-month periods ending June 30, 2002, respectively. Gross Margins Gross margins were approximately 59% during the second quarter ended June 30, 2003 versus approximately 56% for the comparable quarter of 2002. For the six-month period ended June 30, 2003, gross margins were approximately 60% as compared to 56% during the comparable period of 2002. The Company has undertaken certain gross margin enhancement efforts and continues to monitor its expenses in this area in contemplation of current and anticipated business conditions. Sales, Marketing, General and Administrative Expenses Sales and marketing and general and administrative expenses accounted for approximately 36% of total revenues during the second quarter of fiscal 2003 as compared with approximately 38% during the second quarter of fiscal 2002. Actual expense levels increased to $862,456 during the second quarter of 2003 versus $738,384 during the second quarter of 2002. For the first six months of fiscal 2003 and fiscal 2002 such expenses accounted for approximately 39% and 42% of total revenues for the respective six-month periods. Actual expenses increased to $1,871,886 from $1,617,626 during the six-month periods of fiscal 2003 and 2002, respectively. Primary contributing factors to the increased expenses, while decreasing the percentage of expenses relative to revenue, were salaries and support costs related to direct sales and other support personnel added during and subsequent to the second quarter of 2002, as well as other costs in connection with the increased sales levels in 2003. Research and Development Expenses Research and development expenses were $180,322 in the second quarter of fiscal 2003 and $171,893 in the second quarter of fiscal 2002. Such expenses accounted for approximately 8% and 9% of revenues during the second quarter of 2003 and 2002, respectively. For the first six months of fiscal 2003, such expenses accounted for approximately 6% of total revenues as compared to approximately 7% during the comparable period of 2002. The Company has focused its recent research and development efforts on new digital image capture products and reducing cost configurations for its current products. The company is planning to increase R & D expenditures during the remainder of the year. Interest and Other Expense, net Interest and other expense was $75,424 during the second quarter of fiscal 2003 versus $104,951 during the same period of 2002. For the six-month periods, other expense was $118,470 and $179,411 in fiscal 2003 and fiscal 2002, respectively. These amounts were comprised principally of interest expense, mainly associated with net borrowings from MediVision and with financing arrangements provided to certain of the Company's customers in connection with sales of its products. 12 Net Income The Company recorded net income of $302,098, or $0.04 per share basic earnings and $0.03 per share diluted earnings, for the second quarter ended June 30, 2003 as compared to net income of $65,834 or $0.01 per share, for the second quarter ended June 30, 2002. For the six-month periods, the Company recorded net income of $594,768 or $0.07 per share basic and diluted as compared to $69,391, or $0.01 per share, during fiscal 2003 and fiscal 2002, respectively. The results of operations do not include any amounts with respect to a potential contingent liability in connection with the collection of taxes from the Company's customers, which amount has been estimated on the basis of numerous factors and assumptions that might, in the least favorable combination, reach $605,000. Management believes that the probability of such an assessment is remote and accordingly, has not recorded a liability in its financial statements. However, there can be no assurance that the amount that might ultimately be assessed for prior periods would not materially affect the Company's results of operations or cash flows in any given reporting period. Liquidity and Capital Resources - ------------------------------- The Company's operating activities generated cash of $286,132 during the six months ended June 30, 2003 as compared to use of cash of $56,393 in the six months ended June 30, 2002. The cash generated from operations during the first six months of 2003 was principally from net income for the period which amounts were partially offset by increased receivables. The cash used in operations during the first six months of 2002 was principally to fund the procurement of inventory required to meet the second quarter and anticipated near-term sales demand for the Company's products. Cash used in investing activities was $166,903 during the first six months of 2003 as compared to $24,076 during the same period for 2002. The Company's primary investing activities consisted of an investment to secure the line of credit with its bank. The Company anticipates continued certain near-term capital expenditures in connection with increasing its pool of demonstration equipment, as well as its ongoing efforts to upgrade its existing management information and corporate communication systems. The Company anticipates that related expenditures, if any, will be financed from cash flow from operations, borrowings under existing arrangements with MediVision, if available, or other financing arrangements available to the Company, if any. The Company used cash in financing activities of $155,995 during the first six months of fiscal 2003 as compared to generating cash of $94,631 during the comparable period of fiscal 2002. The cash used in financing activities during the first six months of 2003 was principally from repayments of borrowings under existing arrangements with MediVision offset by the exercise of options by MediVision, while the cash generated during the same period in 2002 was principally from borrowings under existing arrangements with MediVision. Principal payments on notes payable other than to MediVision in both years were minimal. In June 2003, MediVision exercised its option, as stipulated in the Amendment No.1, to convert $1,150,000 of principal and interest at a conversion price of $0.185 per share into 13 6,216,216 common shares of stock. As a result of the foregoing transactions, MediVision currently owns approximately 85% of the Company's outstanding common stock. At June 30, 2003, after the conversion, the Company had recorded approximately $459,000 in aggregate debt owed to MediVision, which amount is net of approximately $1,263,000 in accounts receivable recorded in connection with sales of the Company's products to MediVision. On June 30, 2003 the Company's cash and cash equivalents were $346,468. Management anticipates that additional sources of capital beyond those currently available to the Company may be required to continue operations and procure inventory necessary to meet current and anticipated demand for the Company's products. Substantial delays in the delivery of the Company's products would result in reduced cash flow from sales of such products as well as potential increased costs. Notwithstanding the foregoing, the Company's relationship with MediVision, will, in management's opinion, significantly improve the Company's financial condition and enhance management's ability to achieve sustained profitable operations, particularly in light of the agreement between MediVision and Agfa-Gevaert N.V. entered into during the fourth quarter of 2001. Pursuant to the agreement, Agfa acquired a minority interest in MediVision and is to invest in MediVision up to $3.5 million, $1 million of which was provided in connection with the closing in October 2001, $1 million of which was paid in April 2002 and an additional $500,000 of which was paid in October 2002. Under the terms of this agreement, among other things, Agfa and MediVision will jointly develop, promote and market a combined, Integrated Digital Ophthalmology Picture Archive & Communication System. The Company anticipates actively supporting MediVision in these efforts. The Company's relationship with MediVision provides the Company access to resources in addition to working capital. As a direct consequence of the MediVision transactions, the Company has implemented certain gross margin enhancement efforts, including improved production cost control and sustaining engineering programs. In addition, the Company and MediVision are continuing collaborative efforts with respect to design and implementation of certain product development programs. Furthermore, the relationship with MediVision could assist the Company in reducing selling, general and administrative expenses, particularly in connection with co-marketing and co-selling arrangements currently contemplated with respect to certain international markets. Irrespective of the foregoing, the Company will continue to evaluate alternative sources of capital to meet its cash requirements, including other asset or debt financing, issuing equity securities and entering into other financing arrangements and is hopeful that it will be successful in this regard. There can be no assurance, however, that any of the contemplated financing arrangements described herein will be available and, if available, can be obtained on terms favorable to the Company. 14 ITEM 3. CONTROLS AND PROCEDURES The Company's Chief Executive Officer and Chief Financial Officer, based on their evaluation within 90 days prior to the date of this report of the Company's disclosure controls and procedures (as defined in Exchange Act Rule 13a--14(c)), have concluded that the Company's disclosure controls and procedures are adequate and effective for purposes of Rule 13a--14(c) in timely alerting them to material information relating to the Company required to be included in the Company's filings with the SEC under the Securities Exchange Act of 1934. There were no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation. 15 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) 10.1 - Amendment No. 2 to Working Capital Funding Agreement and Short Term Note 31.1 - Certification Required Under Section 302 of Sarbanes-Oxley Act of 2002 31.2 - Certification Required Under Section 302 of Sarbanes-Oxley Act of 2002 32 - Certification Required Under Section 906 of Sarbanes-Oxley Act of 2002 (b) None 16 SIGNATURES Pursuant to the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. OPTHALMIC IMAGING SYSTEMS (Company) By: /s/ Gil Allon ---------------------------------- Gil Allon, Chief Executive Officer /s/ Ariel Shenhar ---------------------------------- Ariel Shenhar, Chief Financial Officer Dated: August 14, 2003 17 EX-10 3 ex10_1081203.txt AMENDMENT TO AGREEMENT AND SHORT TERM NOTE EXHIBIT 10.1 ------------ AMENDMENT NO. 2 TO WORKING CAPITAL FUNDING AGREEMENT AND SHORT-TERM NOTE This AMENDMENT NO. 2 TO WORKING CAPITAL FUNDING AGREEMENT AND SHORT-TERM NOTE, dated as of May 21, 2003 ("Amendment No. 2"), is entered into by and between Ophthalmic Imaging Systems, a California corporation ("OIS"), and MediVision Medical Imaging Ltd., and Israeli corporation ("MediVision"). W I T N E S S E T H: WHEREAS, OIS and MediVision are parties to that certain Working Capital Funding Agreement, dated as of July 13, 2000 and amendment No. 1 The working Capital Funding Agreement as of July 1, 2001 (the "Agreement"), whereby, among other things, MediVision agreed to make loans to OIS for working capital purposes in the principal amount of up to $2,500,000 (the "Maximum Principal Amount"), which borrowings are convertible, at MediVision's option, into shares of OIS common stock pursuant to the terms and conditions contained in the Agreement (all capitalized terms used but not defined herein shall have the meanings ascribed to them in the Agreement); WHEREAS, OIS has executed and delivered to MediVision the Working Capital Note evidencing the foregoing; WHEREAS, the parties hereto desire to amend the Agreement and the Working Capital Note in accordance with the terms and conditions set forth herein, which the parties hereto acknowledge and agree is for their mutual benefit and understanding. NOW, THEREFORE, intending to be legally bound and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Amendment. The Agreement is hereby amended to modify the repayment terms and to extend the maturity date to January 1, 2005. Payments made against these notes, including the Short-Term Note are to be applied on a First in First out (FIFO) basis application to the principal and interest of the oldest Note on record. 2. Options. With the extended maturity date of the notes, the option conversion period is extended to conform to the amendments in this agreement. 3. Ratification. Except as expressly modified by this Amendment No. 2, the Agreement and all of its terms, covenants, and provisions is in all respects, ratified, confirmed and approved. This Amendment No. 2 shall become effective on the date hereof. 4. Counterparts. This Amendment No. 2 may be executed in counterparts, each of which shall be deemed an original, but all of which shall be deemed to be and constitute one and the same instrument. 18 IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 2 to Working Capital Funding Agreement as of the date first above written. OPHTHALMIC IMAGING SYSTEMS By: /s/ Gil Allon ------------------------------------------------- Name: Gil Allon ----------------------------------------------- Title: CEO ---------------------------------------------- Address: 221 Lathrop Way, Suite I Sacramento, CA 95815 Attention: C.E.O. Facsimile No. (916) 646-0207 Telephone No. (916) 646-2020 MEDIVISION MEDICAL IMAGING LTD. By: /s/ Noam Allon ------------------------------------------------- Name: Noam Allon ----------------------------------------------- Title: CEO ---------------------------------------------- Address: P.O. Box 45 Industrial Park Yokneam Elit 20692 Israel [Signature Page to Amendment No. 2 to Working Capital Funding Agreement] 19 EX-31 4 ex31_1081203.txt CERTIFICATION FOR QUARTERLY REPORT ON FORM 10-QSB EXHIBIT 31.1 Section 302 Certification CERTIFICATION FOR QUARTERLY REPORT ON FORM 10-QSB ------------------------------------------------- I, Gil Allon, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Ophthalmic Imaging Systems; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15(d)-15(f) for the Registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals; c) evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting; Date: August 14, 2003 /s/ Gil Allon ----------------------------------- Gil Allon, Chief Executive Officer EX-31 5 ex31_2081203.txt CERTIFICATION FOR QUARTERLY REPORT ON FORM 10-QSB Section 302 Certification EXHIBIT 31.2 CERTIFICATION FOR QUARTERLY REPORT ON FORM 10-QSB ------------------------------------------------- I, Ariel Shenhar, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Ophthalmic Imaging Systems; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15(d)-15(f) for the Registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals; c) evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting; Date: August 14, 2003 /s/ Ariel Shenhar ----------------------------------- Ariel Shenhar, Chief Financial Officer EX-32 6 ex32081203.txt CERTIFICATION REQ'D UNDER SECTION 902 Exhibit 32 Certification Required Under Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the filing of the financial statements of Ophthalmic Imaging Systems ("Registrant") for the quarter ended June 30, 2003 (the "Report"), each of the undersigned hereby certifies, to such officer's knowledge, that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant. /s/ Gil Allon ------------------------- Gil Allon Chief Executive Officer /s/ Ariel Shenhar ------------------------ Ariel Shenhar Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to Ophthalmic Imaging Systems and will be retained by Ophthalmic Imaging Systems and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----